As if we weren’t tired of continuously depressing and pessimistic news on the economy, the new fear is that employee pension plans are on the chopping block. The main reason for this is that, because of abysmal stock performance, companies are being forced to contribute more and more money to their plans to keep them fully funded. This makes it very difficult for companies with little cash to expend right now (which would be most organizations) and the fact that the credit crunch makes it tough to borrow the necessary funds to supply these plans.
To rectify this situation, many companies are choosing to freeze pensions now in order to save money in the long run. Another option several organizations are looking at is switching from pension plans to a 401(k), which are employee-managed and not tied to the certain rules and restrictions that pensions are. And no one can take your 401(k) away except, as in the current case, a faltering stock market.
An ABC News article on the subject pointed to companies such as Newhouse Newspapers and Motorola, which have either cut or suspended pension plan funding. A.H. Belo Corp., owner of four daily newspapers including The Dallas Morning News and The Providence Journal, stated today that they will cut employee salaries and suspend retirement supplements to pension plan participants. Is this a trend?
UPenn’s Wharton School of Business published an interesting, yet fearful article about the shortfalls in retirement planning. Wharton professor Olivia Mitchell, who has been quoted in numerous, recent articles on the subject, also offers an informative video lesson on retirement risk management, where she focuses on “reinventing retirement.” (see below)
If you’re already fed up with this dismal news, I would recommend you skip The Motley Fool’s article on how the Pension Benefit Guaranty Corporation (PBGC), the federal agency that insures retirement funds, switched their investment plan from bonds to stocks shortly before the start of last year’s stock market collapse.
With all this news, it leaves us thinking – are defined employee pensions the dinosaur of retirement plans, facing extinction, or are they merely confronting a tough road ahead, only to re-emerge and prosper in the long run?